Editor’s Note: The U.S. housing market remains a drag on the economy. Recent positive data, specifically positive pending home sales data today, suggests the market may be improving.
But there remains great worry around the U.S. housing market. New home sales fell again in October, and the shadow housing inventory in the U.S. has increased to 2.1 million. Worries over robo-signing, foreclosures, and mortgage putbacks have plagued the market.
Michael David White has a breakdown of the market’s problems and further risks to the economy in 15 charts.
Inventory/Months of Supply - In July sales fell to a record low and inventory in months exploded up into a record high. August, September and October have all be repeats of July's poor reading.
Inventory - Units for sale: The dark side of a dark inventory number is a huge collection of shadow inventory not yet listed for sale. A recent estimate puts that number at 2 million. Distressed supply could overwhelm demand.
Mortgage Bubble: Four years into the crash the fundamental question remains: Will we spend the next 10 or 20 years paying off the mastodon debt used to purchase this bubble? The sane answer is 'no.' The official answer is 'yes.'
Mortgage Bubble - The price of real estate has adjusted drastically. Outstanding mortgage debt used to purchase the bubble remains unchanged. The housing sector is in a zombie mode.
Mortgage Bubble: If values fall 40% nationally HousingStory.net estimates that as much as $5 trillion of mortgage debt will be contaminated and prone to either default or to zombie-ness.
Mortgage Delinquencies: All price forecasts are provisional because the current default rates have not been seen before by any observer. If 11 million mortgages go bad, it could easily lead to a major new fall in prices.
Mortgage Delinquencies vs. Units for Sale: Look at the massive gap between 'X' and 'Z.' Delinquent mortgages equal sixteen times average monthly sales. The gap proves that distressed supply could ruin prices.
Price Trends: Based on the long series by Case Shiller current values are still far above long-trend norms. This is not a signal to buy. It's a seller.
Price Trends - The HousingStory.net forecast of four major property prices indexes suggests we are approximately half way through the total fall in property prices and that prices will fall an additional 18% from current levels.
Price Trends - The Japanese have 19 years of consecutive falling real estate prices. A real estate bubble is deadly serious business and is capable of destroying economic growth if handled incorrectly.
Price Trends: America's housing bubble was far greater than any on record. What if housing prices in many other advanced economies went far more manic than ours? It means you should plan for global catastrophe.
Sales Pending: After free down payments expired in April, demand has consistently maintained the weakest readings in the history of the series.
Sales Closed: Sales of units are weak in the last three years even with unlimited government subsidies for new mortgages. The prescient question: Are we in a housing depression anyway even with unlimited mortgages from the Bank of Uncle Sam?
Sales Closed/Units adjusted - Here again we see a stark and negative trend following the expiration of free down payments. Demand as measured in closed sales has been consistently worse than any prior period in the crash.
Proceed with great caution. The U.S. housing market is riddled with massive risks which will almost certainly lower prices. The global economy remains in quiet crisis due in part to property bubbles scattered through the major economies of the world. There's no shame in renting. There's huge risk of loss for buyers. And for sellers? Sell.
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